Counterfactual analysis of income distribution in Brazil

Using an input-output framework, this article studies the consequences of incomeredistribution from rich people either to poor people or to the government upon the sectoralstructure of the Brazilian economy in the 70’s. Besides the traditional use of elementsof sectoral analysis, the main concept used to achieve this goal is that of “subeconomies”,focusing on industries (and associated patterns of employment and value added) which producethe components of particular expenditure bundles. Thus, a subeconomy is composed bythe economic activity derived from determined expenditure groups, such as poor consumerhouseholds, government, etc. Two main results emerge from the empirical application of theseconcepts. First, agriculture is the most important sector in the generation of employmentin response to transfers of income from rich to poor households. Second, the urbanization which accompanied growth during the 70’s favours a redistributive strategy in which therole of government becomes outstanding in terms of generation of both value added andemployment. JEL Classification: I32; J30; D31.